Gold faces monthly fall on debt deal hopes, US Fed policy outlook

GOLD prices on Wednesday (May 31) headed for their first monthly fall in three, as expectations that the Federal Reserve will likely raise interest rates further and optimism over the US debt deal diminished bullion’s status as a safe haven.

Spot gold was flat at US$1,958.02 per ounce by 0026 GMT, but down 1.6 per cent for the month so far. US gold futures held steady at US$1,957.80.

Top congressional Republican Kevin McCarthy on Tuesday urged members of his party to support a bipartisan deal to lift the US$31.4 trillion US debt ceiling, and a key party hardliner said he would likely support the measure in a critical procedural vote.

Fed funds futures traders now see the Fed as more likely to hike interest rates next month than leave them unchanged, as economic data beats expectations and lawmakers appear to have reached a deal to raise the debt ceiling.

The market is now pricing for a 66.6 per cent chance of a 25-basis-point increase at the Fed’s Jun 13-14 meeting. Higher interest rates dull the appeal for zero-yield bullion.

Meanwhile, Richmond Federal Reserve president Tom Barkin said that once the current inflation shock is past the US economy might support interest rates at a “neutral, normal level”, rather than being driven back to near zero in every slowdown.

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Asian market focus on Wednesday turns to Chinese purchasing managers index figures, which will give the first insight into factory and service sector activity in May in the world’s second-largest economy and the top gold consumer.

Spot silver was little changed at US$23.2019 per ounce, platinum rose 0.7 per cent to US$1,021.08, and palladium climbed 0.8 per cent to US$1,412.15 on the day, but were all set for a monthly decline. REUTERS